Global financial markets experienced a period of distress from 2007 to 2009, which is commonly referred to as the global financial crisis (Australian Bureau of Statistics 2010a). Arising from the global financial crisis, Australia experienced a period of economic downturn from 2008 to 2009, which in turn had an effect on the labour market (Australian Bureau of Statistics and Reserve Bank of Australia 2010). This was the fourth period of economic downturn in Australia in the last 30 years.

Internationally, Australia fared comparatively well during the global financial crisis with economic growth slowing rather than declining (as in many other countries) and unemployment rates amongst the lowest in the Organisation for Economic Cooperation and Development (OECD) (ABS and RBA 2010; Organisation for Economic Cooperation and Development 2010).

Traditionally in Australia, economic downturn has resulted in a significant increase in unemployment, but during the two most recent downturns (2000 to 2001 and 2008 to 2009) the rise in unemployment was less severe (ABS and RBA 2010; ABS 2010a). While unemployment did not rise as it had previously, the impact of economic downturn on the overall labour market was no less severe.

Changes to labour market composition, such as increases in part-time employment and female participation in the labour force, have transformed the effects of economic downturn on the Australian labour market (ABS 2010a). Therefore, to fully understand the impact of financial distress on Australian workers, the analytical scope must be widened to consider other aspects of the labour market, such as underemployment. Exploring underemployment during times of economic downturn gives greater insight into the response from employers in the face of economic distress as well as a better understanding of those sections of the labour market that are being underutilised.

Underemployment is becoming an increasingly important issue in the Australian labour market. Even prior to the global financial crisis Australia had one of the highest rates of underemployment in the OECD (OECD 2010). During the economic downturn the underemployment rate increased significantly, with a higher percentage point increase than that of the unemployment rate (in contrast to earlier economic downturns).

Using published data from the Labour Force Survey collected monthly since February 1978 (ABS catalogue number 6202.0) and customised data from the supplementary survey Underemployed Workers, collected in September 2009 (ABS catalogue number 6265.0), this article explores the experiences of Victorian underemployed workers. It examines underemployment broadly over the past 32 years, as well as in more depth for 2009 as this was the peak of the Australian economic downturn.

Underemployment is generally understood as excess labour supply associated with employed persons, referring to persons working less hours than they would prefer. The ABS defines underemployment as persons employed part-time who would like to work more hours and are available to start doing so and persons who are employed full-time but in the reference week worked less than 35 hours due to economic reasons (such as being stood down or insufficient work being available)1. The number of persons underemployed is therefore a headcount measure. Figure 1 shows the conceptual framework for underemployment, with person estimates for Victoria.

Figure 1. Underemployment conceptual framework, Victoria, Sep 2009

Being underemployed differs from not being fully employed as underemployed workers must be available to begin work with more hours within four weeks from the reference period (the time of the survey). However, to be defined as underemployed an employed person does not need to be actively looking for work with more hours. Full-time employed people are not asked whether they would prefer to work more hours. The only full-time people who are included in underemployment measures are those persons employed full-time who worked less than 35 hours in the reference week due to economic reasons. As a result, the majority of underemployed workers are employed part-time.

Underemployment results in people not being able to engage in work to their full potential and represents loss in financial and personal benefits (ABS 2010b). While the negative effects associated with underemployment have been found to be less severe than those associated with unemployment, underemployment can also cause upset and reduce life satisfaction (Wilkins 2007). Most people who would prefer to work more hours want to do so for the reason of gaining more income (ABS 2009).

While unemployment tends to decrease as the economy recovers, in previous downturns underemployment decreased more slowly, and did not return to pre-economic downturn levels as rapidly as unemployment (Campbell 2008). From Labour Force Survey data, the underemployment rate during the recent downturn rose more percentage points than the unemployment rate for Australia. The underemployment rate also decreased more than the unemployment rate in the months following the downturn.

Figure 2 compares the underemployment rate in Australia and in Victoria. Over the past 32 years Victorian underemployment has followed a similar trend to Australia. From 1978 to 1990, underemployment in Victoria remained at or below 3.5%. In May 1990 underemployment began to increase above 3.5% and it was at this time Australia experienced a recession2 which lasted until 1991. Underemployment reached a peak of 7.5% in August 1992 and had not descended below 6.3% up to November 2010. More recently, underemployment reached 8.0% in August 2009, but since decreased to 6.8% in November 2010. Compared to Australia, Victoria had higher underemployment rates both before and after the most recent economic downturn. Victoria reached the same peak as that of Australia, however, as Victoria's underemployment rate was already higher than Australia's, the Victorian underemployment rate did not increase by as many percentage points as the Australian rate.

As shown in Figure 3, the trend for Victorian unemployment and underemployment rates is different. In early 2000 the underemployment rate became higher than the unemployment rate. From February 1978 to May 2000, the unemployment rate was higher than the underemployment rate. Sustained economic growth following the recession during the early 1990s resulted in a decreasing unemployment rate (ABS 2010a). Increasing rates of part-time employment contributed to the underemployment rate remaining steady (ABS 2010a). As seen in Figure 3, these factors contributed to relatively higher underemployment rates since 2000.

During the recent economic downturn, Victorian unemployment rose similarly to underemployment, then underemployment decreased more than unemployment. From May 2008 to August 2009 the unemployment rate for Victoria rose 1.5 percentage points to 5.9%. For the same period the underemployment rate for Victoria rose 1.4 percentage points to 8.0%. Since August 2009 in Victoria the unemployment rate has decreased by 0.4 percentage points to 5.5% and the underemployment rate has decreased by 1.2 percentage points to 6.8% by November 2010 (ABS 2010b).

The rise in underemployment during the downturn has been attributed to employers preferring to reduce employee hours rather than reduce the number of employees, as skill shortages prior to 2007 compelled organisations to retain staff in expectation of high recruitment costs following a short downturn (OECD 2010).

In contrast to the underemployment rate, an alternative way of measuring underemployment is to look at an hours based measure (volume underemployment rate). The volume underemployment rate measures the additional hours of labour preferred by underemployed workers, as a percentage of the potential hours in the labour force. Potential hours in the labour force refers to the sum of hours sought by unemployed people, additional hours preferred by underemployed people working part-time, and the hours usually worked by all employed people.
The volume underemployment rate also reached its peak in 2009. The volume underemployment rate for Victoria in August 2009 was 3.2%, compared to the underemployment rate of 8.0% (ABS catalogue number 6105.0)3.

In Victoria in August 2009 there were 229,700 underemployed workers and 3.3 million hours of available labour, an average of more than 14 hours extra capacity per underemployed worker. As not all underemployed workers are seeking the same amount of hours, the volume underemployment rate provides a better measure of the number of hours available to the economy. The volume underemployment rate is usually lower than the (headcount) underemployment rate, as the average number of potential extra hours of underemployed people is less than the average hours actually worked by all employed people.

In September 2009 there were 216,000 underemployed workers in Victoria, accounting for 26.6% of all underemployed workers in Australia according to the Survey of Underemployed Workers. Of the underemployed workers in Victoria, the majority (198,400) were part-time workers who would prefer to work more hours. The remaining 17,500 were employed full-time but working part-time hours for economic reasons. In Victoria more underemployed workers would have preferred full-time hours than more part-time hours. Just over half (121,000) of underemployed workers would have preferred to work full-time hours and 94,900 would have preferred more part-time hours4.

There were similar proportions of underemployed workers who worked 1 to 10 hours, 11 to 20 hours and 21 to 34 hours in the reference period. Around a third (36.6% or 78,900) of Victorian part-time workers worked 1 to 10 hours in the reference period, another third (31.3% or 67,600) worked 11 to 20 hours and a final third (32.1% or 69,300) worked 21 to 34 hours.

Figure 4 shows underemployed workers by the number of hours worked in the reference week and if they would have preferred to work part-time or full-time hours. Underemployed workers who would have preferred to work part-time hours in total worked a lower number of hours in the week prior to the survey and those who would have preferred to work full-time hours worked a higher number of hours. Over half (55.4% or 52,600) of underemployed workers who would prefer to work more part-time hours worked 1 to 10 hours in the reference period compared to one-fifth (21.7% or 26,300) of underemployed workers who would prefer full-time hours. Almost half (46.8% or 56,7000) of those who would have preferred full-time hours worked 21 to 34 hours in the reference period compared with 13.4% (12,700) of those who would have preferred more part-time hours.

Underemployed workers who would have preferred part-time hours and usually worked a small number of hours (less than 10 hours) were more likely to want fewer extra hours. Of those underemployed workers who would have preferred more part-time hours and usually worked less than 10 hours a week, around a quarter (26.5%) preferred an extra 1 to 5 hours a week compared to 16.9% who would have preferred an extra 21 to 29 hours.

The Survey of Underemployed Workers also collects information about the period for which the worker has been underemployed. In September 2009, around one third (34.4%) of underemployed workers had been underemployed for less than 13 weeks. 37.8% had been underemployed for between 13 weeks and one year and over a quarter (27.8%) had been underemployed for one year or more, representing a significant quantity of underutilised labour supply.

Around half (48.5% or 96,300) of all part-time underemployed workers looked for work with more hours in the four weeks preceding the survey. Common responses for part-time underemployed workers as their main difficulty in finding work with more hours were as follows: no vacancies in their line of work (18.9% or 18,200), no vacancies at all (13.1% or 12,600) and lacked necessary skills or education or insufficient work experience (10.1% or 9,700). Part-time underemployed workers were also asked about all the steps they had taken to find work with more hours. Respondents were allowed more than one answer. Almost two-thirds (62.4% or 60,000) of those part-time underemployed workers looking for work with more hours asked their employer for more work. Around half contacted prospective employers (51.7% or 49,800), searched internet sites (48.3% or 46,500) or looked in newspapers (44.3% or 42,600).

The majority of Victorian underemployed workers would have preferred not to change their employer or occupation in order to gain work with more hours, and would also not have moved to a different state or to a different location within Victoria if offered a suitable job with more hours. Almost two thirds (64.0% or 138,200) of underemployed workers would have preferred not to change their employer. Over half (56.8% or 122,700) would also have preferred not to change occupation. Two-thirds (67.1% or 144,800) of underemployed workers would not move intrastate if offered a suitable job and three-quarters (75.4% or 162,800) would not move interstate if offered a suitable job.

Past studies have consistently shown that males and females experience underemployment differently (ABS 2010; Watson 2002; Wilkins 2007). According to data from the Labour Force Survey, females have experienced higher rates of underemployment than males, as shown in Figure 5. While the underemployment rates of both Victorian females and males have followed a similar trend, during the recent economic downturn the female underemployment rate increased more than the male underemployment rate. From May 2008 to August 2009 underemployment increased 1.5 percentage points to 10.1% for females and 1.3 percentage points to 6.2% for males. In the period to November 2010, the underemployment rate had decreased to slightly below pre-economic downturn levels for females (down 1.7 percentage points to 8.4%) but had not decreased as much for males (down 0.8 percentage points to 5.5%).

In Victoria in September 2009 the Survey of Underemployed Workers showed that there were more female underemployed workers (124,000) than male underemployed workers (92,000). There was also a distinctive difference in terms of part-time and full-time employment. Female underemployed workers were more likely to be employed part-time than male underemployed workers with 96.1% of female underemployed workers employed part-time compared with 86.3% of male underemployed workers. Male underemployed workers were more likely to prefer to work full-time hours and female underemployed workers were more likely to prefer to work more part-time hours. Almost three-quarters (72.8% or 66,800) of underemployed males would have preferred to work full-time hours compared to 43.7% (54,200) of females. Conversely, over half (56.3% or 69,900) of underemployed females would have preferred to work more part-time hours compared to about one-quarter (27.2% or 25,000) of males.

Underemployed females and males followed a similar pattern for hours worked in the week prior to the survey. However males who would have preferred more part-time hours were more likely than females to work 1 to 10 hours in the reference period. Around three-quarters (74.0% or 18,500) of males who would have preferred more part-time hours worked 1 to 10 hours in the reference period compared to just under half (48.8% or 34,100) of females.

Not all underemployed workers look for more hours, and that differed by sex. Of the underemployed workers who were employed part-time, a higher proportion of males looked for work with more hours than females. 56.3% (44,500) of part-time underemployed males looked for work with more hours compared to 43.4% (51,700) of females. The steps taken by those underemployed workers looking for more work also differed for males and females, as shown in Figure 6. Of those who looked for work with more hours, females were more likely to ask their current employer for work with more hours (68.1% for females compared to 55.7% for males). However, males were more likely than females to register with Centrelink (23.7% and 10.7% respectively), contact an employment agency (25.3% and 9.4% respectively), look in newspapers (51.4% and 38.1% respectively) and search internet sites (52.3% and 44.8% respectively).

Similar rates of underemployed males and females would prefer not to change employers (61.6% and 65.8% respectively) or occupation (54.8% and 58.3% respectively) for work with more hours, and would not move within Victoria if offered a suitable job (64.6% and 68.9% respectively). However, underemployed males were more likely to move interstate if offered a suitable job with more hours (31.9%) than underemployed females (19.2%).

In September 2009 Victorian underemployed workers were largely a young population. Figure 7 shows the number of unemployed males and females in Victoria, across different age groups. A third of all underemployed workers were aged 15 to 24 years (33.3% or 71,900). Around one-fifth were aged 25 to 34 years (18.2% or 39,300) and a further one-fifth were aged 35 to 44 years (21.6% or 46,700). 15.4% (33,300) were aged 45 to 54 and 11.4% (24,700) were aged 55 years and over.

In the 15 to 24 and 35 to 44 year age groups there were considerably more female than male underemployed workers. In the 15 to 24 year age group, there were 44,400 underemployed females, compared with 27,500 underemployed males. In the 35 to 44 year age group, there were 31,000 underemployed females compared with 15,600 underemployed males.

The majority of underemployed workers were those employed part-time, however some age groups experienced lower rates of part-time employment. Male and female underemployed workers had similar rates of part-time employment across most age groups, except for the age groups of 35 to 44 and 45 to 54 years. Females were more likely to be employed part-time than males in both of these age groups. Nearly all (94.5%) underemployed females aged 35 to 54 were employed part-time compared to around three-quarters (73.2%) of males in the same age group.

Figure 8 shows Victorian underemployed workers by age group, and by their preferred total number of hours (part-time or full-time). The majority of underemployed workers aged 15 to 19 years and 55 years and over would prefer their total hours to be part-time (58.7% and 62.1% respectively). Young people enrolled in study are more likely to be employed part-time and older workers see part-time work as a transition to retirement (Abhayaratna, Andrews, Nuch and Podbury 2008). The majority of underemployed workers aged 20 to 54 would prefer to work full-time hours (61.9%). This was prominent for Victorian underemployed workers aged 25 to 34 years with two-thirds (68.3%) who would have preferred to work full-time hours. There is a distinctive gender split for this age group where the vast majority of males (89.6%) would have preferred their total hours to be full-time compared to the majority of females (58.5%), who would have preferred their total hours to be part-time. This age group contains the peak child bearing age (30 to 34) for women (ABS 2008) and may reflect that women in this age group may be balancing work and caring responsibilities.

Underemployed workers in the youngest and oldest age groups were more likely to work less hours than underemployed workers in the other age groups. Around half of underemployed workers aged 15 to 19 years (56.5%) and 55 years and over (49.2%) worked 1 to 10 hours in the reference period, while 46.1% of underemployed workers aged 45 to 54 worked 21 to 34 hours in the reference period.

Older underemployed workers were less willing to change their employment occupation, employer or location within Victoria, as shown in Figure 9. Over two-thirds (69.4%) of underemployed workers aged 55 years and over would prefer not to change their occupation, around three-quarters (72.7%) would prefer not to change their employer and four-fifths (80.3%) would not move within Victoria to gain work with more hours. This is higher than underemployed workers aged 15 to 24 where 46.1% would prefer not to change occupation, 54.7% would prefer not to change employer and 61.9% would not move within Victoria.

Examining underemployment has been an increasingly important aspect of understanding the impact of economic distress on the labour market. During the global financial crisis, the underemployment rate in Victoria reached its highest level in the past 32 years. In September 2009, the number of underemployed workers who would have preferred their total hours to be part-time was similar to the number who would have preferred their total hours to be full-time. Around half of Victorian underemployed workers were looking for work with more hours. Females and males experienced underemployment differently in 2009, especially in respect to full-time and part-time employment and the actions taken or those they would be willing to take in order to gain work with more hours. The majority of Victorian underemployed workers were aged 15 to 34 years, although differences across age groups were experienced in regard to preferred and current hours worked as well as what they would prefer to do (in terms of changing occupation, changing employer or moving) to gain work with more hours.

Examining Victorian underemployed workers gives insight into the impact of the global financial crisis at a local level as well as giving a broader understanding of financial distress on the labour market. Post global financial crisis, the Australian economy is relatively strong (ABS and RBA 2010). While it is too early to tell if the labour market has recovered, one indicator is the return of the underemployment rate to pre-economic downturn levels.

END NOTES

1 Those persons usually working more than 35 hours in the reference week are classified as employed full-time, as are those who usually work less than 35 hours in the reference week, but actually worked 35 hours or more in the reference week. Part-time employed persons are those who both usually work less than 35 hours per week and actually worked less than 35 hours in the reference week.

2 A recession is defined as two or more consecutive periods of negative growth.

3 For more information about volume measures of underemployment (and underutilisation), see the article Volume Measures of Labour Underutilisation, Australian Labour Market Statistics, Oct 2009 (ABS catalogue number 6105.0).

4 Underemployed workers employed full-time who worked less than 35 hours in the reference week due to economic reasons are not asked their preferred number of total hours. These figures are based on the assumption that underemployed workers who are employed full-time would prefer to be working full-time hours.

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